COLUMN-Resource Giants Turn Up the Heat on Regulation: Clyde Russell

Industry News 09:34:46AM Jun 07, 2012 Source:SMM

--Clyde Russell is a Reuters market analyst. The views expressed are his own.--


By Clyde Russell

KUALA LUMPUR, June 6 (Reuters) - The world's resource companies have a message for governments, and they are starting to deliver it more forcibly: regulation, taxes and subsidies are placing at risk the projects needed to fuel global growth.

Exxon Mobil Chief Executive Rex Tillerson become the latest head of a major resource company to fire a broadside, telling the World Gas Conference on Tuesday that if the situation persists, governments will find their economies "walking backwards."

Tillerson, like many CEOs, isn't known for blasting governments, so when he chooses to let loose, it's reasonable to assume that the level of frustration is high and his words should be heeded.

His comments should resonate around the globe, even though they seemed more aimed at authorities in the United States, where Exxon Mobil and other energy companies face calls for tighter regulation of shale gas drilling, even as output from unconventional wells is driving a new energy boom in North America and helping spur fragile economic growth.

Tillerson wasn't the only CEO having a go at governments at the conference in Malaysia's capital, with Shamsul Azhar Abbas, the CEO of state-owned Petronas, saying subsidies deter competition and hinder new investment in energy projects.

While Malaysia is gradually removing many of its energy subsidies, government controlled prices are still widespread across Asia, something that distorts supply and demand and promotes inefficient consumption.

With energy demand expected to rise by around 30 percent by 2050 to meet the needs of a population that will reach 9 billion, the question should be whether governments are the major obstacle to ensuring future supplies of affordable fuels.


Resource company executives increasingly appear to be reading from the same script, pointing out the industry has done its bit by developing technologies to unlock previously unviable resources, and doing so safely.

But these projects cost billions of dollars and need regulatory certainty and consistent taxation.

Resource companies have a strong commitment to safety and the environment, but this doesn't always play out in practise.

Even if the majority of projects are safe, the damage done by a major spill, caused by negligence or incompetence, tarnishes the industry and undermines their ability to win public support. You need look no further than BP's Gulf of Mexico disaster in 2010 as an example.

The palpable increase in industry concern at official policies has emerged as a consistent theme this year, with the Australian government among those feeling the ire of commodity producers.

With more than $175 billion of liquefied natural gas projects underway, Australia is hoping to become the world's biggest exporter of the super-cooled fuel within a decade.

But industry leaders, including Christophe de Margerie, CEO of French major Total, which has two projects in Australia, warned the government to be "careful" in implementing new taxes at a conference in Adelaide last month.

The Labor-led government of Prime Minister Julia Gillard is introducing a carbon tax and mining resource rent tax from July 1, which will increase costs for the LNG industry and big coal and iron ore miners.

This has led to mounting speculation that while the seven LNG plants under construction will come online, future expansions are now in doubt amid higher taxes, labour costs and mounting opposition from environmentalists and farmers.

BHP Billiton and Rio Tinto, the world's biggest and third-ranked mining companies, have also warned that projects are increasingly at risk.

BHP Chief Executive Marius Kloppers said Wednesday it's necessary to maintain spending even in commodity down cycles.

But his company is reviewing its five-year $80 billion spending plan and several flagship projects, such as iron ore expansions in Western Australia, are under threat as the China-led commodity boom matures and costs rise.

Rio Tinto Chief Executive Tom Albanese said last month that there is a risk of under-investment in resource projects as it was getting "harder and harder" to find and develop reserves.

His take is that the commodity boom will change from the demand-led story of the past decade to being a supply-dominated issue, with a lack of new resources being developed likely to keep prices high.

While there is no doubt that the resource industry is making more of an effort to be heard, the question is whether governments will listen.

In Western democracies, governments are constantly being pulled in different directions by various lobby groups, often resulting in policy delays or even paralysis.

The dire state of most developed nations finances also means that politicians, whose primary motivation is to win power and then keep it, will be keen to source new revenues, and taxing commodity producers will always be tempting.

In Asian countries, governments, even those democratically-elected, tend to have more freedom to implement policies and push development strategies.

The trick is to wean the public off subsidies and ensure efficient use of resources, something Asia still has some way to go to accomplish.

The hard truth for the resource industry is they face an uphill battle getting the world's governments to act in a coordinated way to ensure the safe and cheap production of energy and commodities.

That they have started to lobby more aggressively is certainly a step in the right direction.

 

 

COLUMN-Resource Giants Turn Up the Heat on Regulation: Clyde Russell

Industry News 09:34:46AM Jun 07, 2012 Source:SMM

--Clyde Russell is a Reuters market analyst. The views expressed are his own.--


By Clyde Russell

KUALA LUMPUR, June 6 (Reuters) - The world's resource companies have a message for governments, and they are starting to deliver it more forcibly: regulation, taxes and subsidies are placing at risk the projects needed to fuel global growth.

Exxon Mobil Chief Executive Rex Tillerson become the latest head of a major resource company to fire a broadside, telling the World Gas Conference on Tuesday that if the situation persists, governments will find their economies "walking backwards."

Tillerson, like many CEOs, isn't known for blasting governments, so when he chooses to let loose, it's reasonable to assume that the level of frustration is high and his words should be heeded.

His comments should resonate around the globe, even though they seemed more aimed at authorities in the United States, where Exxon Mobil and other energy companies face calls for tighter regulation of shale gas drilling, even as output from unconventional wells is driving a new energy boom in North America and helping spur fragile economic growth.

Tillerson wasn't the only CEO having a go at governments at the conference in Malaysia's capital, with Shamsul Azhar Abbas, the CEO of state-owned Petronas, saying subsidies deter competition and hinder new investment in energy projects.

While Malaysia is gradually removing many of its energy subsidies, government controlled prices are still widespread across Asia, something that distorts supply and demand and promotes inefficient consumption.

With energy demand expected to rise by around 30 percent by 2050 to meet the needs of a population that will reach 9 billion, the question should be whether governments are the major obstacle to ensuring future supplies of affordable fuels.


Resource company executives increasingly appear to be reading from the same script, pointing out the industry has done its bit by developing technologies to unlock previously unviable resources, and doing so safely.

But these projects cost billions of dollars and need regulatory certainty and consistent taxation.

Resource companies have a strong commitment to safety and the environment, but this doesn't always play out in practise.

Even if the majority of projects are safe, the damage done by a major spill, caused by negligence or incompetence, tarnishes the industry and undermines their ability to win public support. You need look no further than BP's Gulf of Mexico disaster in 2010 as an example.

The palpable increase in industry concern at official policies has emerged as a consistent theme this year, with the Australian government among those feeling the ire of commodity producers.

With more than $175 billion of liquefied natural gas projects underway, Australia is hoping to become the world's biggest exporter of the super-cooled fuel within a decade.

But industry leaders, including Christophe de Margerie, CEO of French major Total, which has two projects in Australia, warned the government to be "careful" in implementing new taxes at a conference in Adelaide last month.

The Labor-led government of Prime Minister Julia Gillard is introducing a carbon tax and mining resource rent tax from July 1, which will increase costs for the LNG industry and big coal and iron ore miners.

This has led to mounting speculation that while the seven LNG plants under construction will come online, future expansions are now in doubt amid higher taxes, labour costs and mounting opposition from environmentalists and farmers.

BHP Billiton and Rio Tinto, the world's biggest and third-ranked mining companies, have also warned that projects are increasingly at risk.

BHP Chief Executive Marius Kloppers said Wednesday it's necessary to maintain spending even in commodity down cycles.

But his company is reviewing its five-year $80 billion spending plan and several flagship projects, such as iron ore expansions in Western Australia, are under threat as the China-led commodity boom matures and costs rise.

Rio Tinto Chief Executive Tom Albanese said last month that there is a risk of under-investment in resource projects as it was getting "harder and harder" to find and develop reserves.

His take is that the commodity boom will change from the demand-led story of the past decade to being a supply-dominated issue, with a lack of new resources being developed likely to keep prices high.

While there is no doubt that the resource industry is making more of an effort to be heard, the question is whether governments will listen.

In Western democracies, governments are constantly being pulled in different directions by various lobby groups, often resulting in policy delays or even paralysis.

The dire state of most developed nations finances also means that politicians, whose primary motivation is to win power and then keep it, will be keen to source new revenues, and taxing commodity producers will always be tempting.

In Asian countries, governments, even those democratically-elected, tend to have more freedom to implement policies and push development strategies.

The trick is to wean the public off subsidies and ensure efficient use of resources, something Asia still has some way to go to accomplish.

The hard truth for the resource industry is they face an uphill battle getting the world's governments to act in a coordinated way to ensure the safe and cheap production of energy and commodities.

That they have started to lobby more aggressively is certainly a step in the right direction.